AdminBy Emeka F. Ohaegbu
Small and Medium Enterprises (SME) businesses are catalyst for economic growth for nations of the world. They stimulate job creation, contribute to GDP and propel the economic development of nations.
Small businesses are vehicle for creation of job and livelihood; they contribute to more than 80% of job creation and livelihood. They contribute to about 30% to 50% of the GDP of most African and Asian countries.
Join our WhatsApp ChannelAccording to International Data Corporation, a leading research and insight company, in 2019 SME businesses contributed about 48% to the GDP of combined economies of Brazil, Canada, Chile, France, Germany, Mexico, United Kingdom, and United States.
In Kenya, SME contributes to over 40% of the GDP and remain the highest employer of labor helping to curtail unemployment. It contributes to about 27% of the GDP of the South Africa. SMEs contribute approximately 30% of India’s GDP and are crucial part of the economy, facilitating growth and diversification. SME are responsible for creating a significant number of jobs in India, employing over 110 million people. They account for about 40% of India total workforce in the manufacturing and service sectors.
Organisation for Economic Co-operation and Development (OECD) describes small enterprises as business that employs between 10 to 49 employees. Medium enterprises on the other hand are businesses that employ between 50 and 249 employees.
SME’s in Nigeria is a critical segment of the economy like SME in other countries of Africa and rest of the world, in 2021, Nigerian SME’s contributed about 46% of the GDP and accounted for about 87.9% employment.
This explains why the SME business is a segment of the Nigerian economy the government must constantly oil so that it will continue to stimulate economic growth, assist the government in managing the growing unemployment in the country and provide food to the growing population.
Acknowledging the vital role being played by this segment of the Nigerian business, it is important to say that the government must be intentional in ensuring that SME businesses survive the current difficult economic situation of the Nigerian business environment.
In the last one year, many businesses have been struggling to survive the economic hardship prevalent in Nigeria today. The hyper inflationary situation of the Nigeria economy, the unstable and ever increasing cost of food, raw materials, energy, diesel and petrol even the Jet A1 for the Air craft which have seen the Airline operators increase airfare beyond the reach of the commoners.
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The unstable and continuous devaluation of the Nigeria currency (naira) to the dollar and other foreign currencies have caused both SME and large businesses losses in thousands and millions of naira.
The deplorable state of the infrastructures such as roads has contributed to the hardship, making prices of items to multiple. Raw materials are now out of reach of many business owners.
The constant collapse of the national grid leading to weeks and months of nationwide blackout is another nightmare to business owners, making energy cost to climb to over 50% of cost of production and operational expenses.
Insecurity is another bad news to business owners especially the farmers and the agro-allied value chain. All these factors have caused and choked many businesses both SME and Large business to extinction, or near collapse and some have relocated their business from Nigeria to neighbouring African countries.
Nigerian government needs the small businesses and SME’s to create job for the growing young and vibrant population. Therefore, it is the duty of the government to help SME to weather this storm and stay alive so that the country will not plunge into abyss of poverty, joblessness and total economic doom. Hence, beyond the business externalities that the small business owners have no control, there are areas within the radius and control of the SME businesses to foster their survival in a highly inflationary time.
Tips On How To Manage Business For Survival In An Unpredictable Economy
•Maintain a good financial record
Maintaining a sound financial record is a key strategy and requirement for managing a business. It is a control tool for managing the liquidity of the business, making sound and swift business decisions.
A business financial record could be leveraged in getting access to funding, because no lender is ready to path with fund without sighting and analysing the business through the eyes of the business financial performance.
Records also helps the business to fulfil her statutorily responsibilities of paying taxes and avoiding government penalty. In challenging times, financial records are always essential when a business intends to access government grants and incentives.
It is therefore imperative for business to keep good financial records if they want to thrive in a very competitive, VUCA and unstable economy. These are other benefits of maintaining financial records; it makes budgeting and forecasting easy, doing proper planning and taking up diversification opportunities, availability of financial records allows for assessing the financial capacity of the business.
•Source and take up Government grant and loan
Government intervention through grants and low interest fund if available, Small businesses are encouraged to obtain such to help fund their businesses. Many government of the world introduced grants and loans during the COVID’19 as stimulus to keep businesses alive.
• Expense and cost review and management
Business manager must check all the item of cost and expenses while ensuring that quality and standards are maintained. Constantly explore the option of alternative cost-effective material or services.
• Explore alternate and multiple source of Income
Venturing into new line of businesses or investment opportunities that will increase sources of income is a decision that should be explored. The use of excess capacity or expertise can help business to manage cost and grow revenue. This is a strategy that has helped businesses to survive difficult time. Although businesses should venture into new line of business in which they have good knowledge and skill to deliver.
• Renegotiate foreign denominated facilities and contracts
A period of uncertainties requires that all foreign denominator transactions which will cause exchange losses should be re-negotiated and be denominated to the local currency. This help in hedging against currency fluctuation risk.
•Agile and adaptation strategy
Business managers must be swift in accessing information, data and adapting to new business strategy that will support the survival of the business. New and latest technology, business processes and alternate business opportunities should be encouraged and adopted. During COVID some companies utilised their extra capacities to start up new line of businesses to solve the needs of the world at that time.
• Maintain online presence
Adopting digital marketing tools and proper online presence is a strategy that can help business stay relevant and afloat during hyper inflationary period. Digital presence grows business traffic and potentially grows revenue.
• Waste management as a strategy for cost management and business efficiency
Reducing waste, businesses can cut down on unnecessary costs, optimise their resource usage, and enhance productivity. Reusing materials or recycling of materials is a measure for cost reduction.
* Employee loyalty and retention
In unstable and unpredictable business environment, keeping loyal employees provides companies resilience, stability and the advantage of curtailing costs. Of importance during challenging times is the business ability to manage and reduce overhead cost, cost of recruitment, increase productivity and help manage and execute customer retention strategy.
Long time and experienced employee are often more productive and efficient, they understand the business processes, goals and the culture of the organisation. This helps in managing time, and support effectiveness.
• Customer Service
Long servicing employees are more likely to deliver consistent, high-quality customer service. In industries like retail, hospitality, and service sectors, loyal staff who know customers’ preferences and needs, can maintain positive relationships with customers, helping the business to secure repeat business. Quality service delivery, giving customers good experience usually make for brand affinity.
While the small businesses explore all known strategies to thrive in a very unstable and inflationary business environment, the government should ensure that the appropriate business environment must be in place. Government should provide Grant and Loan as a major life line to help small businesses to survive. Government fiscal and monetary measures must as a matter of urgency be directed at helping businesses survive in moment such as this. The survival of businesses should be paramount to the government of the day.
In conclusion, small businesses can survive in highly inflationary times, by ensuring that they are adaptable to changes, they are agile in decision making and innovation, and be intentional with maintaining positive customer experience and enforcing operational efficiency and cost saving initiatives.
Mr Emeka F. Ohaegbu is an Accountant based in Lagos.
